There's another thing that I've been thinking about with regards to this tax system.
From what I understand, "retail" goods have a tax applied to them, whereas goods that are not sold as retail (i.e., used to make a good or service possible) are sold tax free. If this is the case, then there's a somewhat huge loophole in the tax system due to the fact that many goods could qualify as either, depending on their use (for example, sheets for beds are an asset used by hotels to supply their service, but could also be a retail good for homeowners). One could simply lie about the intended use of goods in order to acquire them tax free. In a more complicated case, one could create a "business" from personal funds, use business funds to buy "assets" for services that the business only renders to its owner, then use these assets for personal use as a part of the "service". Such a person would pay taxes for his business's "services", but any goods bought with "investment" money would escape taxation. From a cursory glance, this seems like a particularly large loophole in league with, if not worse than, the larger of present day tax loopholes.
On a similar vein, putting a 23% tax on a single aspect of the economic cycle also increases the propensity for attempts to evade taxes, as a single act would result in a greater acquisition of funds that would otherwise go to taxes than would be the case if taxes occurred at several phases of the economic cycle (a single act of tax evasion with the present system would evade about 6-7% of the value of the good in question). Given both the ease and the benefit of evading taxes under this system as it stands, it seems that some system to ensure that taxes are actually paid when they are appropriate is needed.
I also talked about this idea with my dad, and he noted a practical reason why adoption of this tax system might be resisted. Under this tax system, there is no income tax. Criminal investigation organizations (police, FBI, etc.) presently use discrepancies between one's income tax records and apparent assets in order to arrest people who spent illegally obtained funds under the crime of income tax evasion (dad cited Al Capone for this phenomenon). Changing the present tax system to a fair tax system would make this impossible, since there would no longer be an income tax. My dad, due to a bias from his personal experiences, considers the authority to arrest for poorly done taxes a psychological power/control that the US government likes wielding, and though I disagree with this point, the fact that a means to find and arrest criminals would no longer exist under this tax system still holds and creates an argument to not adopt such a system. The assertion that this tax system would have a net benefit would also have to counter/compensate for this paradigm, for example, by asserting that the economic benefit gained would be worth the extra crime or by creating a new method to minimize/control/deter crime to compensate for the reduced deterrence of crime.
The more you can afford to save, the less your tax burden is, making it regressive.
If I understand you correctly, you're saying that taxing sales instead of income would lessen the tax impact of expenditures from income obtained by savings (If I misinterpreted, please say so). I don't think that would be the case. I'll see if I can illustrate this by a comparison between a 23% sales tax and a 23% income tax.
We'll consider some person Bob who earns $2,000,000. Bob spends half and saves half. The half he spends, regardless of whether it's taxes as income or as sales, will be taxed for $230,000 if the tax rate is 23%. Bob will get $770,000 worth of goods and services after tax.
In the case that there is a 23% income tax, Bob will have a net $770,000 invested. Let's say that investment rates will double his investment in 9 years. After nine years, Bob will be able to withdraw $1,540,000. Since there would be no sales tax in this case, he could buy $1,540,000 worth of goods. Between now and 9 years from now, Bob spent $2,310,000 after taxes and paid $460,000 in taxes.
Now consider the case that there is a 23% sales tax. Bob's investment will start at $1,000,000, as his original income wasn't taxed. In nine years, Bob withdraws $2,000,000, double his original investment, but his money would get taxed as it is spent. A 23% sales tax means that Bob would get $1,540,000 worth of goods for his money. Effectively, Bob spends $2,310,000 for goods after taxes and pays a total of $690,000 in taxes.
Note that Bob's net value of goods is the same as the previous case. This is because taxation before interest and taxation after interest are mathematically equivalent for the individual. In this simplified case, the only differences between these two tax systems is the fact that the government gets 50% more money in the latter case, but 2/3 of that money comes 9 years later. Complexities of the real world might create mild differences between the sales tax and the income tax, but they have highly similar impacts.
